Tuesday, April 19, 2011

Why German Luxury Carmakers Should Be Afraid of Chrysler

By Ted Santos

In Chrysler’s Super Bowl XLV commercial, a brutally honest narrator muses, “What does Detroit know about luxury?” A better question would be “What do US automakers know about luxury?”

Chrysler’s new “Imported from Detroit” slogan implies that they have America’s answer to luxury European automakers. However, their newly minted line, including the $19,245 MSRP 200 Series featured in the commercial, stops short of the price, quality and performance of a top-line BMW, Daimler, or Audi. 

Chrysler should consider a more audacious approach to capture the luxury car market. Looking at the numbers, there is an opportunity for an American automaker to make a play. As the economy rebounds from its March 2009 lows, high-end items are making the strongest comeback. The big three German automakers, including BMW, VW, and Daimler, are expected to exceed pre-recession revenues after adding over $90 billion in market value since 2009.[1] Audi, the third largest luxury brand in the world, announced that its US sales were up 20% from a year ago.[2] However, GM, Ford and Chrysler have quietly allowed Europe to take the majority of the affluent auto market in the US.

To make matters worse, over the last decade, Chrysler’s share of new-vehicle sales in this country declined steadily from 14.5% to 10.7% according to Autodata Corp. Their calendar year-to-date sales were down 0.1% from March of 2010 [3]. When sales drop, as they did at the end of the decade, Chrysler scaled back by closing plants and laying off employees. Unfortunately this strategy is a short-term solution and has not increased car sales.

A long-term overhaul of Chrysler’s brand would be a complex and ambitious undertaking. For a sense of what this may entail, here are three steps that could be taken to transform Chrysler into a luxury carmaker: re-branding with exclusive style and bold messages like “Imported from Detroit”, capitalizing on aftermarket sales, and partnering with Apple Computer on design.

To see how that fits together, it may be best to view Chrysler several years in the future. Imagine it is the year 2020, eleven years after Fiat purchased a significant portion of the company:

To start, Fiat Group focused on re-branding Chrysler. It left Dodge alone as a separate brand so that its sales of cars and light trucks could serve as a cash cow as Chrysler looked to reshape its image.

Although Chrysler’s nascent brand was fairly neutral, the benefits of its connections with Daimler were evident, especially in the design of the 300 series, which looks like a close cousin of the Bentley.

Given these close ties to high-end auto manufacturers, Fiat saw an opportunity to parlay what they identified as America’s major contribution to the high performance automobile market: Chrysler’s own Dodge Viper.  Chrysler redesigned the Viper to create a new sports car that retained the Viper¹s performance, yet came with unprecedented luxury features and revolutionary styling. Additionally, Chrysler developed a line of luxury sedans that could compete with the Mercedes S-class and BMW 7-series. To top it off, they redesigned dealerships to appeal to affluent buyers.

Management also expanded their operations to capture aftermarket sales. In 2007, car buyers were spending in excess of $30 billion annually in aftermarket upgrades. Chrysler redesigned Mopar, the arm of Chrysler dedicated to parts and services in order to incorporate aftermarket services into the assembly line and give buyers more custom options.

Finally, Chrysler’s exclusive partnership with Apple Computer offered unbeatable quality and interior design. Apple developed a stunningly original dashboard, user interface, and entertainment system with a range of entirely new capabilities in an intuitive format to complement Chrysler’s engineering.

This is clearly an aggressive project. It will require Chrysler to shrink its product line as well its revenues.  However, with a narrow market segment, they could build a much stronger organization. Given a renowned brand, higher margins and global sales, Chrysler could grow revenues to sustainable levels.

In taking on this commitment, Chrysler could restore the allure of the American made car and inspire innovation among the other US auto manufacturers. This fierce growth platform and global perspective could turn the spotlight back on the Detroit assembly line.

Ted Santos is CEO of Turnaround Investment Partners (TIP). TIP serves as an outsourced Chief Innovation Officer to companies that are not meeting revenue growth expectations. Ted partners with CEOs and board members, serves as a trusted advisor to companies going through change, and coaches executives to uncover and penetrate untapped markets, shift corporate cultures and align staff and management to the corporate vision.

[1] Bloomberg, “German Top Carmakers Set for Record Profit as
Value Swells by $90 Billion”. Chris Reiter 2-14-2011
[2] The Independent, “Luxury Car-makers Drive the Boom in
German Exports”. Tony Patterson 2-9-2011, p. 38
[3] http://www.motorintelligence.com/fileopen.asp?File=SR_Sales2.xls

Friday, April 1, 2011

Beyond the Numbers: How Important is Salary?

From the desk of the Chairman:

“If you pay in peanuts, you get monkeys.” Anonymous

In a high performing culture, which comes first – money or performance?

Doling out a salary of peanuts to your employees may very well turn them into monkeys.  At the same time, you don’t want to overpay them either. Before you get caught up in a chicken-egg paradox, you must realize that money alone will not increase employees’ value proposition to the company.

After speaking with many retired CEOs, they have all commented that it is people who take care of the company and its clients, not processes, money, metrics, and benchmarks. If you value the people, they will take care of processes and money.

Too often, executives overlook three main areas of focus that affect employee and company performance:
  1. Building your global competitive edge through the right employees
  2. The importance of an empowering vision – leadership’s role 
  3. Making sure your employees maintain a strong value proposition for the company and clients into the future

Clearly, if you want to have an edge in this global economy, you need to pay a competitive salary. However, you also must make sure you are paying it to the right people. For example, in 2007, the Bank of China took extreme measures to make sure its employees were competitive with the rest of the world. The bank made every single employee apply for their jobs as if they were applying for the first time.

I’m not advocating this practice, but the message was clear: you are competing against anyone who wants your job. Your job is no longer guaranteed and if you’re not the best person for the job, you will lose it. Everyone at the company should be focused on the importance of their position to the company.

Additionally, it is important to consider that even a company with a competitive global salary can run out of steam without a vision to inspire employees. For example, I have seen the CEO who pays employees higher than normal salaries. His vision was based solely on creating more money. That philosophy did not excite employees, and that CEO did not have an environment where people were rewarded for learning and being stretched and challenged. They just did more and more work. Even though the CEO of that business felt he was overpaying his people, his feeling was he had monkeys.

On the other hand, there are countries that do not have the luxury of high salaries and bonuses.  In some instances, money serves little or no purpose in the workforce. For example, while living in the jungles of Belize and rural villages of Costa Rica, I learned leadership strategies that empowered people to perform their best without exchanging currency. The leaders of these villages held a vision of collaboration and mutual benefit, except they did not own it for themselves. They shared those ideals with the community so that every worker, myself included, worked hard because they wanted to see the group or organization succeed.

Despite the need for capital, when people are empowered by the ideals of a village or company, they take pride in what they are accomplishing. When they are in an environment that embraces change, encourages high performance and rewards it, people deliver beyond expectations. We see this in sporting teams that have the highest paid athletes, yet they never make it to the playoffs.    

An ideal business model would feature employees who are too valuable to be let go. So how do you ensure employees have greater value as they progress in their tenure? It is partly the result of getting the right people on the bus as Jim Collins states in Good to Great. The other is making sure the job the person is doing creates value. As Richard Goeglein, Chairman of Pinnacle Entertainment explains, “It’s an insult to an employee to be in a job that does not provide value to the organization or its customers.”

Certain jobs lose value over time. Like a business, employees must remain relevant in a world of constant change. Therefore, employers and employees have a shared responsibility of increasing employee value. To keep a corporation on the tip of its feet, employees need to constantly develop new skills and competencies. To maintain a dynamic company, employees must be able to evolve. At the same time, the company also has a fiduciary responsibility to see that their employees are growing more effectively.

Ultimately, employees with skills and competencies that become obsolete will end up being paid peanuts and companies that don’t develop their employees will be left with monkeys.